Once frugal, always frugal?

[Ramen]

Hi, this is my first post after two weeks of lurking.

I'm 52, single, healthy so far, no debt, kids, or exes. No real assets either, just a 60/40 lazy portfolio of $1.2M. I'm currently debating whether to replace a lost job or go ahead and retire early.

My annual living expenses have averaged only $22K over the past decade. I rent a small apartment and have no expensive bucket list. This might seem like peanuts to some people, but I have never felt deprived.

According to the SSA estimator, I could get $2K a month at FRA (67) or $1,400 a month at 62. At 65, I can tap a small pension of about $400 a month.

If I plug these numbers into FIREcalc for 40 years, I get 100% success with a bunch left over. Even at $40K annual spending, I still get 100%.

My question is: How realistic is it to assume I can keep expenses so low? What might I want or need someday that I can't imagine now? Is a person once frugal always frugal?

Basically, I'm grappling with questions 2 and 4 here. Health insurance is currently doable with ACA.

But what about lifestyle creep? Do people tend to live it up once they have so much free time? This is hard to imagine in my case, but maybe it's common? The main thing I foresee is higher rent if I decide to get a bigger or nicer place. Or maybe buy a small house or condo again (though for now I prefer renting).

In reading older threads, I've been amazed and humbled by some of the numbers shared by people my age and younger earning whopping salaries (hundreds of thousands a year) and worried about retiring on multiple millions. Or couples planning to spend $150K a year in ER, way more than I've ever made or could imagine spending.

I know it's all relative, and I'm not comparing for the sake of comparing. I'm just wondering if there's anything major I'm overlooking. Of the 12 retirement FAQs, the only one that stumps me is "Are you sure those are your expected expenses in retirement?"

While I did not start tracking spending till around age 40, I know it's always been fairly low. Definitely in my 20s, when my annual earnings averaged about $25K. My spending probably peaked in my 30s when I earned more and was a homeowner. Even then I'm pretty sure it didn't hit $30K, and definitely not $40K.

Is anyone out there enjoying a really frugal ER? Are your expenses staying low? Any alarming surprises?

 

[cyber888]

Congrats on the savings.

Several questions:
1) Are you going to continue renting ? In some areas of the country, you could buy a small townhouse for $100K, and stop paying rent.

2) Do you plan a family ? If so, I suppose you would look for a financially-independent person?

3) Do you plan to travel outside the US ? $22K would be fine for basics .. but if you want to travel the world, it could be more.

 

[Mr. Tightwad]

Those who live to spend remain that way.

Those that are frugal stay frugal.

Exceptions are rare.

Change isn't something that easily occurs.

 

[Nemo2]

We don't spend much, we don't want much, and we certainly don't feel that we need much.

We don't frequent restaurants, here at home or when we (used to, pre 2020) travel...have zero interest, (a PITA rather than a treat).

When we do/'did' travel it's always low end, "down & dirty", because that's how we like to travel. So, yeah, maybe once a non spender always a non spender.

 

[Ramen]

Congrats on the savings.

Several questions:
1) Are you going to continue renting ? In some areas of the country, you could buy a small townhouse for $100K, and stop paying rent.

2) Do you plan a family ? If so, I suppose you would look for a financially-independent person?

3) Do you plan to travel outside the US ? $22K would be fine for basics .. but if you want to travel the world, it could be more.

Good questions, thanks!

1) I'm not certain, but I really like the convenience of renting. Last time I owned, it was a $90K rural cabin, very nice, paid cash. But I live in civilization now and prefer it. I'd like to stay here but have not yet found anything I really want to buy. If that changes, I might have to re-employ to get a loan. Around here, $100K buys nothing.

2) No family plans, definitely no kids. Maybe a partner if it happens.

3) I hate traveling, so no plans for that.

 

[OldShooter]

The killer is inflation. Your planning horizon is probably around 35 years.

At the Fed's 2% inflation target, a dollar in Year 35 will purchase about half what it purchases today.

At US historical rate of 3.11%, a then-year dollar will purchase about 1/3 of what it purchases today.
​

So it is critical to consider inflation in your strategy, like by taking SS as late as possible to maximize your inflation-adjusted income. Conservative equity investments, like total market funds, are thought to be inflation hedges. You might also want to consider I-bonds or TIPS.

It is astonishing to me that the word "inflation" does not appear in the 12-question list.

 

[Ramen]

Doesn't the FIREcalc account for inflation? I selected Constant Spending Power and 3% rate in the Spending Models tab of the calculator. Or am I misunderstanding this?

 

[mystang52]

Food for thought: if you have an $18,000 annual cushion (that $40,000 100% success rate) but live frugally odds are good you won't spend $40,000 a year EVERY YEAR. In other words, you have a lot of slack to splurge on a grand vacation once in a while, or a nicer car than you might ordinarily would have purchased, etc. Since the splurges would be infrequent it seems you would be golden.
Also, maybe I'm crazy but since you are single with no dependents why not take SS at 62 to get the extra income while you are young?

 

[Ramen]

Food for thought: if you have an $18,000 annual cushion (that $40,000 100% success rate) but live frugally odds are good you won't spend $40,000 a year EVERY YEAR. In other words, you have a lot of slack to splurge on a grand vacation once in a while, or a nicer car than you might ordinarily would have purchased, etc. Since the splurges would be infrequent it seems you would be golden.
Also, maybe I'm crazy but since you are single with no dependents why not take SS at 62 to get the extra income while you are young?

Thanks, I've had the same thoughts. My parents started SS at 62 and have done fine (they also have pensions). And right, I'm figuring an occasional splurge but also being mindful of the cushion. If I were to upgrade my housing, for example, total spending could get closer to $30K, which still leaves a $10K cushion.

 

[OldShooter]

Doesn't the FIREcalc account for inflation? I selected Constant Spending Power and 3% rate in the Spending Models tab of the calculator. Or am I misunderstanding this?

It's my understanding that it does, but I am not a user of those calculators. Others can advise. Make sure you understand the rates that any calculator is using though. Recent history/30 years is IIRC a little over 2%. Go back an additional 10 years and it shoots to like 4.2% Recent history is definitely not worst case. Take a look at a chart covering the late '70s, early '80s. Pretty good pucker factor there.

 

[Jerry1]

When you estimated SS did you enter in data that included earning nothing between 52 and 67? If not, the estimator probably estimated that you would keep making your current income for those 15 years. I don't think it will bust your FireCalc success rate, but something to consider if you didn't already.

 

[SecondCor521]

To answer your title question, yes. I think most people have an internal mechanism where they tend to either stay at, or move back towards, a financial picture that fits their mind's eye.

Other than three young adult offspring, your situation is similar to mine. I spend a fair amount on their college educations, but I segregate those assets and that spending. Aside from that, I have pretty basic and frugal numbers, and I am perfectly content.

If anything, my spending dropped a bit for a while when I retired at age 46. I was a little nervous even though FIREcalc etc. said I was fine. Also, I discovered that some decent percentage of my spending was stress-induced; when the stress from the job went away, so did the spending.

Overall it's been enjoyable.

It sounds like you know what you want, but that since it's different than what a lot of other people do you're a little unsure of yourself. I hope you figure out that you're good at knowing what you want and gain confidence in your life plans.

...

I will add that my ER has been a good ride so far, because the last five years my investments have done well, my spending went down a bit, and I have received some unexpected income in dribs and drabs that added up. So now I face a new issue: I can safely spend about 2.5x what I naturally do. This is an interesting "problem" to have.

The first five years of your ER might turn out differently, of course. But what dawned on my only after a year or two of retirement is that if we calculate assuming the worst on every single factor...well, things almost always turn out better than the absolute worst. That, in fact, is the definition of "worst"

The nice thing is that even if the market doesn't do as well for your first five years, your frugality and thoughtfulness will keep you in good stead. Unless you shift your investments in a super-conservative direction (which is a reasonable choice if you don't have kids), you're going to end up where I am.

Most of the people here end up in similar situations after a few years. One could argue you're already there.

TLDR: You're almost certain to go from "Do I have enough?" to "I have enough." to "I have more than enough." It's a mental journey as much as a financial one.

 

[iloveyoga]

Those who live to spend remain that way.

Those that are frugal stay frugal.

Exceptions are rare.

Change isn't something that easily occurs.

From helping my in laws and my folks with their money, along with our own, I would totally agree with this.

 

[Dave J]

If you are confident that you will be happy with current lifestyle going forward, I feel you can do whatever you want to do. If you want to retiree, try it for a year or two. You will have an idea if it suits you or not. If you want to work part time , try that. If you miss co-workers, go back to work until you are tired of it. For you, it seems you have plenty of money. Good luck!

 

[Ready]

Congratulations on being able to live comfortably on $22K per year. In Southern California that wouldn’t even cover rent on a run down dumpy apartment. I’m assuming you wish to continue living in a low cost of living area after retirement.

As for when to take SS, I still would lean toward waiting until 70 if you can, assuming you are healthy and expect to live for a long time. Waiting until 70 is essentially buying longevity insurance. You are most likely to need that money if you live to be 100. If you die early it won’t matter so aside from having a little less to spend from 62-70 there isn’t much downside to waiting. But if you need the money at 62 to live on that pretty much makes the decision for you.

 

[scrabbler1]

Our situations have much in common.


Like you, I am single with no kids. Like you, my total portfolio at age 52 (5 years ago) was $1.2M. My total spending is pretty close to yours, averaging in low $20sk although I have lowered it to its lowest in my 12 years of ER (under $20k) after adjusting my portfolio to boost the ACA subsidy I had failed to qualify for the last few years.


My AA has been in the 45/55 range as I slowly rebalance from stocks to bonds as I age. What I would ask you is how your $1.2M is in taxable versus tax-deferred like an tIRA? I have 2/3 in taxable so the IRA, my frozen company pension (worth about $1k per month) and SS are what I call my "reinforcements" which await me until age ~59.5 (2 years from now) or later. This is why I split my ER plan into 2 parts. The first part is getting from my ER age (45) to age ~60 using only my taxable part. Having that original 15-year time frame took a lot of pressure off the taxable part of my portfolio. Once those reinforcements begin, my overall financial picture looks even better. You don't seem to have my reinforcements but you have some of them.


One thing I did with regard to inflation was to split my projected spending into 2 parts - medical and non-medical - so I can assign separate inflation rates to each of them. I have assigned 10% to medical, which is mainly HI premiums, while assigning 3% to everything else. In my 12 years of ER, which began in 2009 (my first full year of ER), HI has been by far my most volatile expense. The ACA has helped stabilize things, and having adjusted my portfolio a year ago has brought down my medical expenses to their lowest since 2014. And that's despite having had some health issues 5 years ago which require more doctor visits and prescription drugs.


Another thing I do in my budgeting is to split my taxes into 2 parts. The first part is what I call a "basic" part which are taxes on the more stable and reliable income from my investments. The second part (which doesn't really exist much any more due to that portfolio adjustment I made a year ago) is what I once called an "excess" part and I'm not worried about them because I will always have the money to pay them, coming from the more volatile part of my portfolio such as cap gain distributions.

 

[daylatedollarshort]

Is anyone out there enjoying a really frugal ER? Are your expenses staying low? Any alarming surprises?

We're not at the $22K level of frugal, but relatively frugal for a high cost of living area and pretty happy. We're interested in sustainable living and having a low energy footprint. In general what seems good for the planet has also been good for our finances, like converting to solar and LED lights and eating more plant based. We intentionally try not to buy a lot of consumer goods and are pretty happy to spend an evening out at a dive bar with friends, hiking at a state park (free with a senior pass) or seeing a symphony on seat filler tickets.

Our expenses are less than we budgeted for. The extra outlays have been health insurance increases (prior to the ACA) and our earthquake insurance almost doubled. But we spent much less on college costs for our kids and health insurance (post ACA) than we planned, so net everything has been better than planned.

 

[RobbieB]

Everyone is frugal with some stuff and spendy with other stuff. That's the nature of who we are.

Unless you have "buffet bucks" you have to have priorities.

I like caviar and truffles. I also recycled my old deck boards and DIY'd a new deck.

Tradeoffs and what you can do with and without. Only you have the answer.

 

[Dtail]

Doesn't the FIREcalc account for inflation? I selected Constant Spending Power and 3% rate in the Spending Models tab of the calculator. Or am I misunderstanding this?

Yes, Firecalc adjusts for inflation and notes as such in the Spending Model section. Using the 3% choice gives you a good representation of historical inflation.
You are good to go from a financial perspective.

 

[Markola]

OP, unless you undergo an unlikely personality transplant, I really don’t see you suddenly starting to spend your money unsustainably. At 52, your patterns are pretty well ingrained. Everything I read indicates one’s spending ends to go down as one ages, not up.

With $1.2 million and your low spending levels, you can probably live on just your interest and dividends, meaning your 60/40 portfolio will reach escape velocity in your lifetime. Once you take your pension and social security, pfffft....you’ll be one of those people in the paper: “Secretive millionaire buys town a library.”

You’ve won the money game and don’t need to work unless working brings you more joy than not working.

Also, renting is great if you’re happy with it. Owning brings all kinds of headaches and expenses that you currently get to outsource. I’d rent if DW wasn’t so committed to owning.

Enjoy your strong financial position!

 

[Major Tom]

Congratulations on being able to live comfortably on $22K per year. In Southern California that wouldn’t even cover rent on a run down dumpy apartment.

Hey, don't knock run-down dumpy apartments. I've spent much of my life living in places that fall below the material standards many would deem acceptable. In fact, I'm living in a "characterful" old house in the SF Bay Area right now! Remember the time-honored saying, "One man's dumpy run-down apartment is another man's castle" or something like that

 

[street]

Once frugal, always frugal. I'm a believer in that statement, and a living witness of that statement.

 

[MrBig1]

Yeah Ramen, once frugal always frugal. Folks don't change much. The big unknown is health. I don't think anyone really knows how to plan for the truly worse case scenario.

 

[Ready]

Hey, don't knock run-down dumpy apartments. I've spent much of my life living in places that fall below the material standards many would deem acceptable. In fact, I'm living in a "characterful" old house in the SF Bay Area right now! Remember the time-honored saying, "One man's dumpy run-down apartment is another man's castle" or something like that

Well OK, but an old home in San Francisco still costs more than the most luxurious place you could rent in about 80% of the country.

 

[CRLLS]

I believe that after 30 to 50 years of whatever habits one has developed and lived with, one's retirement habits do not change significantly. IOW, you can't teach an old dog new tricks.